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Inheritance tax planning

The impact of Inheritance Tax has been creeping up on us for several years. It is a great irony that for the majority of us, our estates have been built up from taxed income, very often at higher rates of tax at 40% or more. Then the Government aims to tax our estates further, much of it at rates of another 40%.

Every year, many thousands of estates are hit by an Inheritance Tax bill, and the number affected has been increasing very significantly. This has been driven by two key factors:

The threshold for Inheritance Tax liability has been frozen at £325,000 for several years

The value of properties and other assets have grown significantly following the financial crisis. It is estimated that 90% of homeowners within range of the M25 now have an Inheritance Tax liability

Yet, with the right planning, a large amount of Inheritance Tax can legally be avoided. At Price Ferguson Wealth Management, we believe that the right planning could be the most valuable gift that you ever give to your children and other heirs.

The points to consider

1. Changing legislation

It used to be the case that you could only escape Inheritance Tax if you made gifts and then hoped that you lived for another seven years. The problem was that in doing this, you lost ownership and control of both the capital and the income from it. This was a serious deterrent to most people. How the world has changed! There are now a range of legitimate schemes and trusts that allow the donor to have access to both the capital and income should they need it later in life. This has transformed Inheritance Tax planning.

2. The scale of the problem

The first step is to identify your likely Inheritance Tax liability as things stand today, and understanding what can be passed on without any tax liability and what can't.

This also involves an understanding of the available reliefs against Inheritance Tax.

Once you know what is then left, we can look at doing something about reducing the liability.

3. Reordering your assets

The next stage is to reorder some of your assets where this is appropriate. This does not entail giving assets away. Rather, it is ensuring that your wealth is allocated into the right ownership for a married couple. Access to your capital is still available.

It may be as simple as updating your Will. It is estimated that there are 6.5 million Wills in the UK that are out of date.

4. Working with trusts

Trusts don't have to be complex. Rather, they are legal instruments that put your money in the right hands at the right time. Access to your capital can be enjoyed in various ways.

5. Deeds of variation

If you already have an Inheritance Tax liability, then inheriting money from a previous generation (typically your parents) will only add to your heirs' tax liability in due course. In simple terms, an inheritance of £100,000 from one's parents will result in an extra £40,000 tax liability. Trusts can again be helpful here, allowing you to have access to the inheritance but not the extra tax burden that would result from directly inheriting.

6. Administration

Whilst tax planning may seem complicated, it is quite normal for us at Price Ferguson, as we are working on this all the time on behalf of our clients.

Clarity of goals and purpose, and the right structures put in place to achieve these, can be easily managed. Our aim is to help put you in control of your affairs.

Obtaining advice

Financial planning can be complex, but it is what Price Ferguson Wealth Management is good at. If you feel that you would like to take advice on the best routes for you, then we hope that you will come to Price Ferguson. To find out more, please contact us.

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